Course 105: Financial Reports and How to Read Them
Annual Reports
In this course
1 Introduction
2 Annual Reports
3 10-K Reports
4 10-Q Reports
5 Other Forms

Every public company issues an annual report, which it sends to shareholders (and anyone else who requests one). These reports are usually professionally designed with lots of color and slick graphics, intended to put the best possible face on the company and its activities over the past year. All this propaganda needs to be taken with a grain of salt, but the annual report does have value, since it tells you what the company considers important about what it's doing and where it's planning to go.

The real meat of an annual report is in the financial statements and notes found at the back. In fact, it's often said, with good reason, that annual reports should be read from back to front. All of the financial information in a company's annual report can also be found in its 10-K filing with the SEC, but it's generally presented much more legibly in the annual report. It's always a good idea to look over these financials and notes with a critical eye and to compare them with what the company says in the front of the report. For example, problems such as declining revenues or cash flows will probably be downplayed in the puffery part of the report, but they can't be hidden in the financial statements. (We'll cover the nitty-gritty of reading these statements in a later course.)

Accompanying the financial statements is a section labeled "management’s discussion and analysis," which summarizes the company’s results for the year. This section comes halfway between the glowing optimism of the front of the report and the stark reality of the financial statements; it presents the management’s spin on the numbers. It generally contains lots of valuable information, such as discussion of risks, year-to-year comparisons, and breakdowns of results according to sectors and geographic locations.

Next: 10-K Reports >>


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